New economic research, data, events and analysis from a London-based economist

Friday, November 02, 2007

Inequality - a threat to India's boom

While it is right to celebrate India's economic resurgence, not all its citizens have benefited from this growth; many are landless, and poverty remains endemic.FT journalist Jo Johnson warns that Inequality threatens India’s economic boom

It is a fair bet that when the ruling elite of a poor developing country
ignores a non-violent protest by 25,000 desperate citizens, it will
soon face a violent one. When a 25,000-strong army of landless workers,
indigenous tribespeople and “untouchables” from the bottom of Indian
society marched 320km to Delhi to highlight the growing divide between
haves and have-nots, they were met with crushing indifference.
Admittedly, their timing was bad: Mumbai’s Sensex index on Monday
punched through the 20,000 mark for the first time, triggering
orgiastic self-congratulation by the English language media and
eclipsing all other national news.

“The first 10,000 took over 20
years. The next came in just 20 months. Superpower 2020?” rhapsodised
the front-page headline of the Economic Times, the cheerleader for a
phenomenon it calls the ”global Indian takeover”. In their excitement,
several other newspapers double-counted the value of all Mukesh
Ambani’s stakes in various listed Reliance entities and erroneously
concluded that he had overtaken Bill Gates and Carlos Slim to become
the wealthiest person in the world, with investments valued at $63bn.
Although that joyous moment may not be far off – the elder Ambani is
worth nearer $50bn – it has not come yet.

As first-world India cheered the stockmarket, there was scarcely mention of the visitors
from third-world India who had camped overnight in the old city. Feet
swollen, mouths parched and hair matted, the protesters were physically
detained in a gated enclosure throughout the day, denied the
satisfaction of completing the symbolic last leg of their march down
Parliament Street. The city’s police force had instructions to keep the
capital spruce for visiting dignitaries, among them Angela Merkel, the
German chancellor, Henry Paulson, US Treasury secretary, and dozens of
chief executives in town for a lavish conference organised by Fortune.

The chief executives cocooned in the sandalwood-scented splendour of the
Imperial Hotel would have learnt far more from the marchers than from
the predictable fare on offer at the conference. From the stunted and
wasted frames of the landless, they would have observed how
malnutrition rates, already higher than in parts of sub-Saharan Africa,
are rising in many places, as wages lag behind soaring food prices.
They would have learnt how the 120m families who depend on the land for
subsistence agriculture, generating no marketable surplus from one
season to the next, live in terror of expropriation by state
governments operating land scams in the name of development.

Fobbed off with promises of a committee to discuss land reform, the Gandhian
leaders of the protest march sent a warning to the government:
advocates of non-violent struggle are losing the argument to those with
more radical ideologies. “Forty per cent of Indians are now landless
and 23 per cent are in abject poverty,” said P.V. Rajagopal,
vice-chairman of the Gandhi Peace Foundation, which co-ordinated the
rally. “Such conditions have bred Maoist insurgency in 172 of India’s
600 districts and farmers are killing themselves in 100 other
districts. So we want to ask the government: where are the fruits of the reforms in these districts?”

It is in interests of western investors to listen. The capacity of
Naxalite groups to disrupt the India growth story, by deterring
investment in vast, resource-rich swathes of the country, is real.
Posco, the South Korean steel group, knows from experience. Its plans
to invest $12bn in a new plant in the Naxalite-infested state of
Orissa, potentially the largest foreign direct investment in Indian
manufacturing, have been stalled by protests for nearly four years:
four of its officials were even kidnapped by locals deeply sceptical of
promises of compensation and rehabilitation. They have been released,
but the company is no nearer to taking possession of the several
thousand acres needed.

Posco’s story highlights a much deeper
crisis. It should raise important doubts about whether India will be
able to attract the investment required to sustain its recent growth
rates of more than 8.5 per cent. Investment as a share of gross
domestic product has indeed risen sharply over the past three years,
but it is skewed towards services.

Attempts to start an industrial boom
have backfired: a plan to promote Chinese-style special economic zones
degenerated into a real estate racket. It displaced hundreds of
thousands from their land, many of whom went uncompensated. The
protests are becoming more violent: two people were shot this weekend
as they fought plans for a chemical plant on 9,000 acres in West
Bengal.

As no image-conscious investor wants blood on their
hands, it is hardly surprising that FDI in Indian manufacturing has
recently been declining. During the 12 months to January 2007, it fell
to just $1.5bn from $1.8bn the previous year, according to Morgan
Stanley. Manufacturing, notwithstanding pockets of excellence, is
struggling to become globally competitive and failing to play its
traditional role as a sponge for surplus rural labour.

It is a vicious
circle: until the hundreds of millions who eke out a subsistence
existence in the villages are given reason to believe they will receive
fair compensation for the loss of their land and incomes, and not just
hot air, they will fight tooth and nail for the status quo, miserable
as it is.

Above written edetorial piece clearly expresses the colourless background behind the upper false greener part as being seen with many hidden and covered
truths of the unknowns, far lacksfundamental requirement of an common individual.Some how baseless economic and finacial theories from the respected governing wings of such nations about the development of country lacks in overall development of the society.Huge investment and multiple changes in the financial indices does not really represent the clear pictures of the first births (common citizens) of the nations as their most basic problem getting unsolved, with clear evidences of these economical despareties in such counties like India.Getting bigger and bigger in overall indusrtial overview and providing new world class capatalist from the country hides the true environment of the country.As an local citizen i can easly find this social unequal outfits.Being attracting the foreign direct investments and keeping faith with big industrial houses for the industrial and tecnical development is well and good for the government of these countries but always keep in mind the true face of the country, citizen and bearing of commons day by day is most neccessary for revolutioning the whole nation and to become one of the biggest socially , financially well oranized countries.

Sadly, market bulls and investors see only half of the picture -- the monetary side.

While one feels great about the India Growth Story, there is a hidden tragedy -- a sort of India Death Story, unreported by the media. It is a story of social and environmental costs being quietly passed on by manufacturers, and frankly, society and environment are getting saturated.

An important social principle is violated by many manufacturing activities: While engaged in a profit-making activity, one must not leave a mess behind for the rest of society to clean up.

This principle can easily be understood as common decency. If I come to your house as a salesman in order to market something, I must clean up any mess that I make while selling my product.

But this principle is continually breached by manufacturers and marketers on a large scale in our country, and nobody even thinks of objecting!

Have you ever pondered how mineral water and soft-drink manufacturers who sell their product to you in a PET bottle take no further responsibility what happens to their non-biodegradable bottle? Most often, it ends up as litter in the environment, because the consumer simply does not know what to do with the bottle, other than tossing it away.
This is not how it should be. At the time of conceptualizing and designing the product, the manufacturer has the responsibility of thinking what will happen to the discarded packaging, or, in the case of non-consumables, to the product itself after its use. He must take the responsibility to create a safe avenue for its disposal or recycling.

This requires a mechanism to collect the empty container or used product. So he must set up that mechanism. For instance, the grocery shopkeeper may incentivate the consumer to return PET bopttles to him by initially charging a coupl;e of rupees as deposit for the bottle, which he returns when the consumer returns the bottle to him. These bottles can then be sent back to the company’s recycling facility. (This is how soft-drink bottles made of glass were returned to manufacturers until very recently, remember? We, the consumers, were OK with this system. So why the sudden urge to package everything in discardable materials?)

We should mobilize citizens to demand legislation that every manufacturer must repurchase/collect and recycle as many tonnes of raw material as he uses on a week-by-week basis. For example, if a mineral-water manufacturer uses ten tonnes of plastics per week to manufacture bottles, he MUST buy back ten tonnes of plastic scrap and safely recycle it.

Now think for a moment about used automobiles. Used cars and scooters in India are sold as second-hand vehicles, and then third-hand, fourth-hand. A second-hand vehicle may go from a metropolis to a small town or village. It keeps going further and further into the interiors as it ages, as its condition deteriorates and its market price dwindles. And then?

And then it is sometimes sold to a garage at a throwaway price, and this garage may salvage spare parts from it. ut what remains of this vehicle, including worn-out tyres, may lie around rusting and gathering dust for years and years on some deserted road. The tyres, when they are often burnt in winter for warmth, releasing black, acrid smoke and carcinogenic chemicals into the atmosphere.

Or it lies as a rusting eyesore in some building compound for many years as the last owner loses all motivation to either repair it or sell it.

Thus, every automobile manufacturer sells a product that turns into many hundred tonnes of junk — assorted metal, plastic, glass and rubber junk — after 6-8 years. They end up littering the beautiful countryside with this junk. Is this socially acceptable behaviour?

If one looks for solutions, they are not difficult to find. Legislation and regulations are the answer.

Automobile manufacturers must be required by law to buy back that many tonnes of metals, plastics, glass etc every week, and find ways to recycle them. The cost may be met by raising the market price of their product… but the responsibility to make the recycling activity happen MUST be fixed on the manufacturer of every product.

It is possible that this will make some manufacturing and marketing processes unviable. If so, this would mean that these economic activities were unviable in the first place, and were sustainable only by passing on hidden costs to the environment, to society and to consumers! Such activities must necessarily come to an end.

Many industrial activities are environmentally and socially subsidized to keep them economically profitable. Let us lobby governments to knock off that subsidy and see how many activities remain sustainable!

I propose peaceful demonstrations to compel industries to self-regulate, and legislators to pass laws:

Small groups of citizens shall collect the branded packaging material of various manufacturers from the environment, and delivering them in large bundles every week to their corporate offices. It belongs to them, right? So let them have it back!

A peaceful demonstration like this, sustained over some weeks, would make a powerful statement. I think this will make a powerful media impact as well… and thereby, an impact on the consciousness of people.

This would be the first step to making changes happen. Citizens, industry and government must first be made to acknowledge that there is a problem; then viable solutions will begin to emerge.

What say, fellow-citizens? I would appreciate your detailed responses to this idea.

Those who wish to join me in peaceful social action (as described) are urged to email me at [email protected]

I'm continually amazed by a kind of public blindness to the obvious realities around us. I don't want to go into details, arguments, justifications etc. because they obscure the big picture. I don't want to talk about global warming, unsustainable growth, extinction of species etc. because they seem like distant theoretical stuff to us.

I'm stating a fact as bluntly as possible: our lifestyles are about to take a big hit.

The world economy -- and with it the India economy -- is coming unravelled. Please stop believing in bullish projections; the government and big businesses are just kidding themselves and kidding us that all will be well.

Our current world order, which we broadly refer to as our economy, has been built on too many untested assumptions. What we -- and our economists and governments -- firmly believe as solid bedrock is only shifting sand, and the sand is shifting uncomfortably beneath our feet. The superstructure that has been built up in the past two or three decades is far more than this sand will continue to bear.

We keep telling ourselves and each other that the shifting is only temporary, like a bit of stock market bearishness. But this shifting is not so temporary. Big adjustments are starting to happen which may take 60-70 years to completely settle down. These changes -- the collapse of an unsustainably tall tower -- will not end in our lifetime.

What does this mean? Firstly, it means that the kind of rich urban living that we take for granted is about to become impossible to continue. We cannot change our habits of living and thinking, but we are about to have them changed for us, most drastically and unpleasantly.

We can no longer live by intellectual labour alone. We are about to have a large amount of physical toil thrust upon us. Large numbers of us will die because they are unable to physically, psychologically or socially adapt.

Our children are growing up under the illusion that they shall live in a comfortable world like ours. I'm afraid that is not the case. Their lifestyle may resemble the lives of cotton farmers in Vidharba... and that is if they are fortunate.

Our living conditions will very probably resemble what is available in Afghanistan or Iraq. We shall all have to get used to living and dying with that level of daily discomfort, uncertainty and deprivation. Our cities will become largely uninhabitable due to a sudden drop in the level of infrastructure and of livelihoods. Jobs will vanish overnight, and so will power supply and water supply. Transportation will become patchy. There will be a huge drop in mobile, telephone and internet connectivity as well, and a huge rise in costs.

Savings will vanish overnight as markets and banks collapse. Galloping inflation will make currency almost worthless.

Our psychological and social skills will be the key determinant of of our continued survival. A vast majority of us, whose skills have wasted away due to easy living, will not make the cut.

All this is set to happen within the next two or three years.

I make this deeply uncomfortable statement because I believe it is true. I hope that understanding all this will help at least a few of us orient ourselves, brace ourselves, our kids and our old folks for the hurricane of events that is about to unfold with terrifying speed and inevitability. Knowledge and forewarning is what enables us to adapt and survive.

I really want us all to come out of our comfortable mental burrows and face our future with open eyes and minds. Our response doesn't have to be catatonic; we don't have to freeze up like rabbits caught in the headlights, doing nothing but waiting for the impact. It doesn't have to be blind panic... but it doesn't have to be pure denial either!

There is a very tiny chance that we can all strategize the best way to face the impending crisis, provided we recognize it early enough to take action. It seems wildly optimistic to think that substantial numbers of citizens can get together, discuss and act intelligently, rather than getting caught up in ego-battles. It seems even more optimistic that they can convince the government at various levels to be truly proactive and do something truly different.

But I prefer to believe that such things can happen in the months to come. Come, let us put our heads together and make them happen. Contact me at [email protected] or phone me on 9821588114.

Krish, you underestimate the ability of people to solve problems within the free market system. Below is a related article:

Behind the food riots, a deeper debate over globalization and the secret of good farming May 11th, 2008

Some would in effect reverse the fundamentals by investing massively in small farmers, instead of letting them sink in a free-trade world. That would be very different from what the U.S. has long been evangelizing -- take uncompetitive food producers off the land and put them in new jobs with paychecks that would buy them cheap food, efficiently farmed.

Others argue that the problem is not that trade is too free, but that it should be freer. U.S. and European farm subsidies are bad enough, they say, and things will only worsen if the present crisis triggers more restrictions.

There are those who say it's not free trade that's to blame but the sudden seismic shift in the global economy -- ballooning oil prices, a biofuel boom that is gobbling up farmland, and a voracious Chinese market for food. Get used to it, they say -- the era of cheap food is over.

But Tyler Cowen, a professor of economics at George Mason University, recalls that the last big food price increase, in the 1970s, was followed by agricultural advances known as the "green revolution" that hugely increased the supply and brought down costs, and "If we don't mess this up we can expect the same today."

However, he worries that U.S. and European Union farm subsidies and tariffs, plus grain export bans and taxes triggered by the latest crisis, will make things worse.

U.N. agencies recommend truly leveling the playing field by cutting subsidies to huge agricultural companies, ending export bans, lowering tariffs and increasing investment in small-scale agriculture, one farm at a time.

"This could be a window of opportunity for governments to relaunch the small-farming sector and traditional farming," said Fernando Soto, the FAO's policy chief for Latin America and the Caribbean.

U.N. Secretary-General Ban Ki-moon says a "green revolution" in Africa, fueled by new techniques and agricultural investment, could double African food production in just a few years for "a relatively modest" $8 billion to $10 billion a year.

The U.S. is already the world's largest provider of food aid -- $2.1 billion last year -- and Bush has asked Congress to approve an extra $770 million in response to the crisis.

But the world can't donate itself out of this crisis, said Paul Polak, founder of International Development Enterprises, an aid organization that says it has helped 17 million small farmers escape poverty by selling them low-cost technology such as water-saving drip irrigation systems and foot-powered water pumps.

Polak says of the world's 525 million farms, 450 million are less than five acres, with the poorest working a single acre or less. Modern methods -- especially in irrigation and crop rotation -- won't work well there, he said.

"We need a revolution in small-plot agriculture to allow farmers to grow the food they need to eat and to grow high-value crops they can sell on the market to lift themselves out of poverty," Polak said.

Cowen says the idea is good, but points to Brazil, which has made great strides in strengthening its food security by allowing its farms to get larger and more corporate.

"Small farms," he says, "are a sign that your agriculture is very inefficient."

I really want us all to come out of our comfortable mental burrows and face our future with open eyes and minds. Our response doesn't have to be catatonic; we don't have to freeze up like rabbits caught in the headlights, doing nothing but waiting for the impact. It doesn't have to be blind panic... but it doesn't have to be pure denial either!

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